Scott writes about Internet competition and threats to tech capitalism (economic regulation, property infringement, and harmful industry behavior and misrepresentation.) Cleland is President of Precursor® LLC, a Fortune 500 research consultancy focused on the future of Internet competition, privacy, security, property rights, innovation and algorithmic markets. Scott Cleland is author of the book: “Search & Destroy: Why You Can't Trust Google Inc.” www.SearchAndDestroyBook.com. Cleland also authors the widely-read www.PrecursorBlog.com; publishes www.GoogleMonitor.com; and serves as Chairman of www.NetCompetition.org, a pro-competition e-forum supported by broadband interests. Eight Congressional subcommittees have sought Cleland’s expert testimony and Institutional Investor twice ranked him the #1 independent telecom analyst in the U.S. when he was working for institutional investors. See a full bio at www.ScottCleland.com.

Why Anti-Piracy Legislation Will Become Law

Pending legislation to combat online piracy will very likely pass into law in 2012. The effort enjoys exceptionally broad bipartisan political backing because of the obvious pressing need to stop rampant online piracy that undercuts American economic growth and destroys hundreds of thousands of American jobs. Few legislators will oppose what in effect is the Internet Crime Act of 2012. Simply politicians don’t want to appear soft on crime, especially in an election year.

The legislation’s locomotives: First, the severity of the online piracy problem is propelling a legislative solution. The global black market for counterfeit and pirated goods and services has exploded to $650 billion annually, causing $360 billion in annual global trade losses. ~25% of all Internet traffic is estimated to be IP infringement. Rogue websites attract 53 billion visits annually. As the epicenter of the global IP economy; the U.S. has the most to lose from not addressing this economically corrosive problem of online piracy. Threatened U.S. intellectual property companies generate a whopping 33% of U.S. GDP and ~60% of U.S. exports.

Second, the exceptional breadth and depth of bipartisan political support behind this major legislation is very rare. It is backed overwhelmingly by an abundance of important and powerful entities from across the political and economic spectrum: companies, associations, unions, and law enforcement. Even those opposed to the legislation claim to support the “concept” behind the legislation, and limit their criticism to the chosen mechanism proposed to tackle the problem.

The bills in question are: the Senate PROTECT IP Act and the House Stop Online Piracy Act (SOPA). The Protect IP Act passed the Senate Judiciary Committee in May unopposed on a voice vote and is on path for a full Senate vote potentially before the end of this year. With only one Senator formally opposed to the bill, Senator Wyden, and with 35 bipartisan cosponsors and bipartisan leadership support, expect the Senate to pass the PROTECT IP Act overwhelmingly when it comes to a vote.

The House SOPA bill was introduced last week by the Chairman and Ranking Members of the House Judiciary Committee and IP Subcommittee with the support of the House Leadership. The House process strongly favors technical bills that have strong bipartisan support in Subcommittee, Committee and the leadership, so expect the House bill to pass overwhelmingly in 2012. Given that the House and Senate bills are pretty similar, and that the Administration is very supportive, led by Vice President Biden, a former Senate Judiciary Committee Chairman, the conference bill is very likely to become law in 2012.

What the bills do. In a nutshell, both the Senate and House bills would apply the same due process mechanism used currently to combat U.S. based infringing sites to combat foreign-based sites dedicated to IP infringement. Specifically, the proposed due process mechanism would empower the DOJ to request a Federal court order to prohibit American access to, advertising for, and financial payments to, rogue websites dedicated to illegal IP infringement and based-overseas. Simply, the legislation would prohibit U.S. service providers, Internet search engines, payment network providers, and Internet advertising services from aiding or abetting rogue websites. The House bill also adds provisions to increase the penalties for other Internet crimes like: trafficking in counterfeit drugs and military goods, illegal streaming, and economic espionage.

Simply the political clash involved here in this bill is not the usual Democrat-Republican, liberal-conservative, business-labor, or tech-non-tech clash, but is the political clash between pro-IP forces and anti-IP forces. While the anti-IP forces have disproportionate clout with social media, tech-oriented media, and the blogosphere, to create the perception of significant opposition to this legislation, their “chicken little – sky is falling” rhetoric has not gained traction because it is fact-challenged and way out of the mainstream, because America’s Constitution, economy, culture and success are predicated on enforceable property rights.

Opponents’ hyperbole — that enforcing property rights and preventing the aiding and abetting of websites dedicated to IP infringement somehow threatens freedom of speech — is nonsensical. Every member of Congress knows there is no freedom of speech right to commit crimes or aid and abet in the commission of crimes. Opponents’ radical belief that property infringement somehow should not be a crime does not change the fact that property infringement always has been a crime in the U.S.A. Moreover, the Supreme Court, in its 2005 decision (9-0) to shut down Grokster, a p-2-p file-sharing website dedicated to copyright infringement, clearly showed that sites dedicated to infringement, have no freedom of speech right to infringe on others’ property rights.

Opponents’ intimations that the Tea Party movement is somehow a strong ally against property rights enforcement is deceptive and does not withstand scrutiny. The Tea Party stands for the limited government principles of the Founding Fathers embodied in the U.S. Constitution. To see for yourself that this bill is completely aligned with the U.S. Constitution, which is clearly pro-property rights and property rights enforcement, just look at Article I Section 8: where it says: “The Congress shall have the power… to promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries…” and “…to define and punish piracies and felonies committed on the high seas, and offenses against the law of nations.”

In sum, pending legislation to combat online piracy is very likely to become law in 2012. It addresses a very real and serious economic problem that undercuts economic growth, job creation and innovation. It enjoys exceptionally broad bipartisan support and business-labor-law enforcement backing. And its opponents’ main arguments against it — don’t hold water. As with all legislation that goes through the legislative process, it will get modified and improved to address legitimate concerns, which in turn will make it even more likely to pass.

This legislation is a big deal because the rule of law will finally catch up with the drove of pirates stalking the Internet “high seas” who currently steal from America with impunity.

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I fully agree with you. The proposed Senate Protect IP Act and the House SOPA both combat piracy. The worries that it does not give enough rights to people who run the sites are unfounded. It merely applies the regulations and procedural protections that US sites have to comply with to foreign based sites dedicated to IP infringement. The house bill does place new penalties on sites that bring in counterfeit drugs weapons and conduct illegal streaming and economic espionage but those actions are already illegal in the offline world, so logically they should be outlawed online as well.

Scott, have you read my colleague Larry Downes dissection of SOPA over on CNET? The problem isn’t that the bill is too hard on pirates, but that trying to punish piracy in such a crude and draconion manner has plenty of negative unintended consequences: SOPA effectively introduces new monitoring requirements for all websites that allow user content, even comments posted to blogs. Rightsholders.. need only “a good faith belief that a Web site is ‘avoiding confirming’ infringement, and they can demand that payment systems and advertising networks cease doing business with the Web site.” Larry suggests that lawmakers’ focus is simply misguided:

If parasitic foreign Web sites are truly costing the U.S. economy significant losses (a claim made regularly by content industries but without credible data to back it up), then the best use of government resources is not to surgically remove hyperlinks and DNS table entries. Rather, we should step up the pressure on foreign governments to enforce their own laws and international treaties extending U.S. protections abroad. And indeed, one positive development in SOPA is a provision that does just that. It requires both the State and Commerce Departments to make protection of U.S. copyright and trademark a priority in both diplomatic and trade negotiations. To fulfill SOPA’s stated goal of reducing foreign infringement of U.S. interests, that section should have been the beginning and the end of the bill. The proposed legislation, unfortunately, goes much farther, losing sight of any actual harms in need of legislative correction, and invoking repeatedly the likely application of the law of unintended consequences.

Larry’s focus on the unintended consequences of regulation, and his emphasis on finding narrow solutions to clearly defined problems is what prudent policymaking should be about. In fact, that’s why Larry and I at TechFreedom have been so critical of net neutrality regulations as a sweeping, prophylactic remedy for an ill-defined problem when less restrictive alternatives like enforcing antitrust laws and consumer protection laws would work better. In fact, I seem to recall that you on the same side as us in those arguments!

But I’m sorry to say that I realized long ago that, while we arrived at the same place on net neutrality, we came to it from profoundly different places. I won’t presume to speculate as to exactly what motivates you, but it sure isn’t the prudent conservatism of Edmund Burke or F.A. Hayek’s focus on the limitations of human knowledge and the dangers of top-down planning.

If anything, you seem to fall into precisely the same mentality that always motivates regulatory advocates: that intentions matter more than results. The question here isn’t whether the law is well intentioned, or even whether piracy is a huge problem (I’d agree it is). The question is whether this particular approach to combating piracy is worth its costs. I am, as always, highly skeptical, for the reasons Larry explains (and has explained in his past work in this area).

Perhaps after you’ve read his work, you could enlighten us as to why he’s mistaken about these apparently significant unintended consequences of draconian copyright enforcement. The same concerns are shared by many other copyright lawyers and folks who’ve worked at the very companies that will have to try to figure out what this poorly-worded law means. (Where did you study copyright law, again? Or, which Internet companies have you worked at?)

In the meantime, I will limit myself to objecting to this paragraph:

Opponents’ intimations that the Tea Party movement is somehow a strong ally against property rights enforcement is deceptive and does not withstand scrutiny. The Tea Party stands for the limited government principles of the Founding Fathers embodied in the U.S. Constitution. To see for yourself that this bill is completely aligned with the U.S. Constitution, which is clearly pro-property rights and property rights enforcement, just look at Article I Section 8: where it says: “The Congress shall have the power… to promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries…” and “…to define and punish piracies and felonies committed on the high seas, and offenses against the law of nations.”

Your argument seems to be: this bill is pro-copyright, the Constitution is pro-copyright…. therefore… this bill is “completely aligned” with the Constitution! This is precisely the sort of wooden application of the Constitution that gives serious constitutionalists such a bad name. Our nation’s framers, including Thomas Jefferson, thought it extremely important that any government action aimed at securing the exclusive rights of authors and investors be carefully and cautiously tailored to benefit society as a whole. For example, see Jefferson’s refutation of the suggestion that inventors “have a natural and exclusive right to their inventions, and not merely for their own lives, but inheritable to their heirs” (which is how the Europeans still conceive of both copyright and patents). Thus, if the the Copyright clause is “clearly” anything, it is utilitarian. That is, Congress is granted the power to create and enforce copyrights “to promote the progress of science and the useful arts.”

Thus, the questions about trade-offs Larry raises are precisely the questions the Constitution requires Congress to ask in legislating new copyright regulations—and make no mistake about it: however much you value rewarding content creators, copyright laws are regulations. Like all regulations, they are subject to regulatory capture by special interests and to the law of unintended consequences. (I know you get this in the context of net neutrality, but why not here?)

So, please, spare us your simplistic attempt to reduce this all to a “political clash between pro-IP forces and anti-IP forces.” There certainly are leftist groups criticizing the bill who never met a copyright law they liked; some might go so far as to defend clear examples of piracy. I certainly would not. My message on copyright is the same as my message on all attempts to regulate the Internet: Congress should (1) identify clear harms, (2) look for narrowly tailored solutions, (3) ask whether the regulation’s benefits outweigh its costs, considering its likely unintended consequences, and (4) focus on finding the least-restrictive solutions available, which usually means .

This is what it means to fight for “tech freedom”—and what we at TechFreedom try to do across the board. What are you fighting for, exactly? Where’s that healthy skepticism that made you worry about the unintended consequences of net neutrality regulation? WWHS (What Would Hayek Say)?

Put more simply: good intentions don’t matter. You should know this better than anyone from having watched the FCC become a rogue agency because of the vague and broadly worded language of the Communications Act. Sorting out this mess can’t be left up to the courts: betting the Internet’s future on the unpredictable whims of federal judges is a recipe for disaster and an affront to the rule of law.

It is misleading to state that ‘Rightsholders.. need only “a good faith belief that a Web site is ‘avoiding confirming’ infringement, and they can demand that payment systems and advertising networks cease doing business with the Web site.” ‘

A rightsholder may make a good faith allegation, but that does not mean that the ISP or OSP has to agree.

I can tell PayPal that a copyright infringer is illegally sharing my work, and I can prove to PayPal that a PayPal donation button on that infringer’s page is functioning (which means that I have to give money to the digital parasite who is ripping me off!) but it is still up to PayPal whether or not they will delete that infringer’s account.

Sometimes, PayPal chooses to ignore a copyright owner’s problem with that foreign pirate.

I can tell Social-Go (and so can my colleagues) that one of their customers is violating their terms of service, and distributing for profit works by my colleagues, and Social-Go can choose to continue to host with the alleged pirates’ website. Social-Go is not obliged to notice for themselves what’s going on with this site, even when the pirates publish and distribute movies that are not even showing in theaters yet, like Real Steel or Puss In Boots which have been on allegedly on FILESONIC and available for 4600 paying subscribers to a certain foreign infringing group for the last 4 days!

It’s not as easy to stop abuses as critics of the Bill seem to think. Individual copyright owners have no power at all.

I’m sympathetic, Rowena, to the concerns you raise, especially about individual copyright holders. Unfortunately, I don’t think there’s been nearly enough realism about what, precisely, is the problem and how to deal with it in a targeted fashion. We have to remember that the flipside of empowering rightsholders to exercise valid claims is empowering a great deal of abuse, too.

I’ve studied “piracy” since 2008, and I see a few simple solutions, of course, from the perspective of small-time authors.

1. The “red flag” wording in the DMCA is poorly defined. It seems to me, the intent of the law was that a “red flag” was not limited to DMCA notices.

Red Flag should be defined.

2. There ought to be a government ombudsman to whom individual copyright owners could complain, (free as long as their DMCA was accurate) if an OSP persistently ignored “red flags” under a new definition, or failed to enforce its own TOS/TOU with regard to repeat infringers of copyright.

3. Sites that host uploaded files should have a greater responsibility to ensure that their users are aware of copyright laws.

It should not be hard to create a pop-up that an uploader has to read and sign, that clearly states “I swear under penalty of perjury that I am the author of this work.”

It could require all the information needed for a DMCA counter notification, and an upload would be impossible unless the uploader provided name, address, telephone number, email address etc.

Ideally, it would also state “I agree that this information may be provided to any copyright owner submitting a DMCA concerning this work.”

Currently, Scribd calls every uploader an “author” and by default describes every work uploaded as “Creative Commons”. Scribd also uses generic wording about “sharing my stuff”.

I suspect that this might lead to honest confusion among e-book lovers who don’t read and understand the front matter of their e-books, do not understand the meaning of “All Rights Reserved”, and have never read the TOS of the site, but simply scrolled to the bottom to click “I AGREE”.

(Scribd is one of the more responsible sites.)

4. Terms of Service aren’t read. It doesn’t need to be as quick and easy to join a site. Membership sites could have a check box for every paragraph, and a function that disallows clicking if insufficient time is taken to read every paragraph.